I'm Swiss-born, served as a Marine jet attack aviator in the Korean and pre-Vietnam era. I received an MBA from UC Berkeley in 1962, with highest honors. I've held top management positions at GM, BMW, Ford, Chrysler and retired from GM as Vice Chairman in 2010 at age 78. My two successful books are "Guts: The Seven Laws of Business That Made Chrysler The World's Hottest Car Company" (Jonn Wiley+Son, 1998) and, more recently, "Car Guys vs. Bean Counters: The Battle For The Soul Of American Business" (Portfolio Press, 2010) Most current book "Icons and Idiots" (Portfolio Press, 2012). I'm a contributor for Road & Track Magazine along with CNBC, and appear with some frequency on "Larry Kudlow." I serve on numerous startup boards, am a Leigh Bureau professional lecturer and provide consulting services to a number of clients. I tend to have strong opinions which I share with enthusiasm ... some would say "to a fault." My personal motto is "Often wrong, but seldom in doubt." For more information, visit my website, boblutzsez.com.

The Real Story On GM's Volt Costs

I was surprised to read Ben Klayman’s piece on alleged astronomical per-unit losses on the Chevrolet “Volt.” Ben is usually a solid professional who checks his facts.

The statement that GM “loses” over $40K per Volt is preposterous. What the “analyst” in whom poor Ben Klayman placed his faith has done is to divide the total development cost and plant investment by the number of Volts produced thus far. That’s like saying that a real estate company that puts up a $10 million building and has rental income of one million the first year is “losing” 9 million dollars, or several hundred thousand per renter.

Listen, Ben and Micheline: that’s not how car business cost accounting works.

Let me provide a look at how a car company tracks profitability of a product program: measured are material cost and labor, and these are deducted from the selling price. The positive difference is called “gross margin.” Then, one allocates per-unit “fixed cost” (advertising, general overhead, etc.) plus per-unit depreciation and amortization of the initial investment, based on the TOTAL NUMBER TO BE PRODUCED OVER THE LIFETIME of the product. If the margin, after all deductions, is still positive, then we call it a “fully accounted profit,” and the car is a winner.

The Volt “variable cost” (labor and materials, without revealing any confidential GM information), looks very roughly like this: A Li-Ion battery today runs about $350 per KWh. The Volt’s is 16KWh, so that’s roughly $6000. Add $4,000 for the battery pack structure, the cooling, the high-voltage wiring, the motor and the power electronics. So, that’s the electric portion. Add about 20 hours of assembly labor which we’ll round to a very generous $1000. The dealer net price is, say, $37,000. We now have $26,000 left for the rest of the car, which, cost-wise, is about equal to a Chevy “Cruze” which sells for around $22,000 retail! (And the Volt has no costly conventional transmission.) Thus, the “Volt”, by my estimate, is either close to “variable break-even” or may be on the cusp of a positive gross margin. Deduct the per-unit allocation for all fixed cost, depreciation and amortization and it is, surely, still “under water”….but not by much, and less and less so as the volume builds and other, higher-margin GM cars, like the Cadillac ELR, piggy-back off of the Volt’s initial investment.

Maybe the Volt, a first-generation technology masterpiece and the most-awarded car in automotive history, will never make a really decent profit.

But succeeding generations of the same technology will. Meanwhile, the happy Volt buyers (most satisfied owners of any nameplate in the market) are getting more that they paid for. (Is that so bad?)

We won’t even factor in the profound halo effect the introduction of the Volt has had on GM’s reputation as a leader in environmental automotive technology; it’s priceless, and could never have been achieved without it.

So, once again, the knee-jerk Volt bashers, devoid of any real knowledge, have had their usual joyous verbal catharsis, but the car doesn’t care: The volumes are building globally and it’s doing exactly what it was designed to do.

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Thank you for a very interesting piece. I think that you do not appreciate the political overtones involved in the Chevy Volt. Many conservatives and other opponents of Mr. Obama like to use the Volt a cudgel to pummel him with. In late 2008 General Motors faced the danger of bankruptcy and President Bush rushed TARP money to GM and Chrysler. Later President Obama of course completed the process, taking over GM in many ways. His critics would like to use the Volt as an example of what government meddling in the free market can produce, a lemon they say. That the Volt was in development and pre-production long before Mr. Obama came into office deters these critics not at all. So thank you for a bit of fact in a sea of opinion.

Comments like yours are a disaster. Why are so many people insistent on promoting ignorance, based on hate, based upon objecting to anything new and superior to what they currently understand. Good grief, its AMERICAN ingenuity for crying out loud. How can you people call yourself “Patriotic” and hate something that is American. The “GM BAILOUT” that was initiated by Bush, and finished by Obama (who you people seem to love to hate for no factual reason) not only saved ALL OF the General Motors product line, it also saved all the companies that are almost exclusively in business because GM buys their services and products. It was not a “Chevy Volt Project Bailout” like people throw around. It saved a few hundred thousand jobs. But you get upset because you think that your tax dollars went to a vehicle that you haven’t even looked at, or at least DRIVEN, or tried to understand the impact that it can have on the world going forward. Imagine if ALL cars, not just GM vehicles, but if all cars operated with the Voltec concept. The “VOLT is a disaster” as you call it, has eliminated a few supertankers from needing to be brought in….from countries that don’t like us. But you’re ok with that apparently.

The thin is, it cant be called a disaster right this minute. Which really a annoy right wingers because they need it to be a disaster before the election. But if it not at least they can try an spin the story so that it is. Who need the truth, certainly not the electorate, at least according to the republicans.

Apparently you don’t know who Bob Lutz is and you seem to be unaware of what the Volt is and what it does.

Do you have any idea of why the Volt won the North American car of the year award AND the European car of the year award? Or how about Motor Trend’s car of the year? Do you know why Volt owners give it the highest satisfaction score ever in the history of Consumer Reports? It’s because Lutz, Lauckner, Farah, Posawatz, et al did a hell of a job on the car.

For me personally I’ve had my Volt since March 2011 and I have put more than 20,000 miles on it and have used barely over 60 gallons of gas. If you care to do the the math on that it comes up to well over 300 MPG. In terms of dollars and cents the Volt saves me about $2,000 a year over my last car that got about 30 MPG.

On top of that it has a 5 star safety rating and in case you have never driven an electric car, they are just fun to drive. Electric motors have a lot of low end torque and so they are very quick off the line and the low center of gravity of the vehicle makes it very responsive.

As you can tell I love this car and so do almost every single Volt owner out there. What I, as a lifelong Republican who also calls myself conservative, can’t stand is the willful ignorance of other Republicans and conservatives when it comes to the Volt. This is a car that should be hailed by conservatives but somehow this has become an Obamacar. It’s ludicrous and shows very poorly on “our” side of the political divide.

That’s an interesting comment and I’m not sure why people are “calling out” the comment. Anyway, just FYI, the Prius was introduced in 1997 in Japan and 2000 here in the US. During this time frame GM was working on the EV1. Obviously the battery technology of the late 1990′s was not where it needed to be in order for the EV1 to be cost competitive.

Fortunately, some of the technology and some of the knowledge gained from the EV1 was used in the Volt. With the rise of Tesla in the mid-2000′s, Lutz thought that perhaps GM should use the new battery chemistry to make a better electric car. After all, if Tesla could do it and they were a start up, why couldn’t GM do it with their world class engineers? Lutz brought the idea to Lauckner around 2006 and in 2007 the Volt concept car was introduced at an American car show.

Less than four years later the Volt went on sale and it has allowed some drivers to get over 5,000 MPG and allows them not to have any “range anxiety” commonly associated with pure electric cars. Of course, the more typical user gets in the ball park of 170 MPG.

Personally, I’m around 330 MPG but I haven’t checked my mileage in the last several weeks and so I could be off just a little.